NYSE IPO Guide Third Edition

NYSE IPO Guide Third Edition

1

Why go public?

1.1 Advantages of conducting an IPO
J.P. Morgan (Investment Banking)
When considering an IPO, a company 
should evaluate the pros and cons, as 
well as the motivations for going public. 
This evaluation process is best conducted 
in conjunction with an investment bank, 
which can assist the company in thinking 
through the key points. There are numerous 
advantages to going public, the most 
pertinent of which are detailed in the 
following section.
(a) Access to capital
Going public affords a company access 
to capital, both at the time of IPO and on 
an ongoing basis. An IPO can consist of 
primary and/or secondary proceeds. A 
company can raise primary capital to fund 
growth, make investments and/or repay 
debt. An IPO can also provide liquidity 
to existing investors and give them an 
opportunity to sell stock.
Additionally:
■ Once the company is public, it has 
access to an entirely new, deep and 
liquid source of capital for 
any future needs it may have.
■ Being publicly traded adds equity to 
the company’s capital-raising toolkit, 
enabling the company to achieve and 
maintain an optimal capital structure 
and potentially use stock as an 
acquisition currency.
■ Following the IPO, the company will 
be able to tap the equity markets via 
follow-on offerings of primary and/or 
secondary shares, or a mix thereof. 
After the company has been public 
for 12 months, it will be eligible to 
access the equity capital markets 
more efficiently via a shelf registration 
statement.
(b) Liquidity event
Listing on the NYSE has numerous benefits, 
not only for the company but also for its 
shareholders. As previously mentioned, the 
IPO can be structured such that existing 
owners of the company can sell down their 
positions and receive proceeds for their 
shares. In addition, once the company is 
public, the existing owners can monetize 
their holdings in an efficient fashion

(c) Branding event and prestige
An IPO is a significant branding event. 
By listing on the NYSE, the company will 
receive far-reaching media coverage, 
starting on the first day of trading if not 
before. Subsequent to the IPO, research 
analysts will begin to write reports on the 
company, further raising its profile. This can 
enhance the company’s visibility, increase 
its credibility with existing and potential 
customers and suppliers 
and help strengthen its competitive 
position.
(d) Public currency for acquisitions
Once the company is public, it can use its 
publicly tradable common stock in whole 
or in part to acquire other companies in 
conjunction with, or instead of, raising 
additional capital. Publicly tradable stock 
with a reference price is more attractive 
to target shareholders than illiquid private 
company stock, which is more difficult to 
value.
(e) Enhanced benefits for current 
employees
Stock-based compensation aligns 
employees’ interests with those of the 
company and its public shareholders. By 
allowing employees to benefit alongside 
the company’s financial success, these 
programs increase productivity and 
loyalty to the company and serve as a key 
selling mechanism when attracting top 
talent. Furthermore, issuing equity-based 
compensation will allow the company to 
attract top talent without incurring additional 
cash expenses. Being a public company 
provides employees with the ability to 
monetize the value of their stock-based 
compensation, whether it is options or 
restricted stock.
1.2 Potential issues
J.P. Morgan (Investment Banking)
While there are numerous advantages 
to going public, there are also several 
considerations that the company, its 
management and its shareholders 
should evaluate prior to embarking on the 
IPO process. The most seamless IPO 
processes are for companies that fully 
evaluate these considerations before 
embarking on an IPO and begin making 

the necessary preparations months, if not 
years, beforehand.
(a) Loss of privacy and flexibility
Private companies can operate without 
disclosing proprietary information in a 
public forum. However, to comply with 
securities laws, public companies must 
disclose potentially sensitive information 
publicly, which regulatory agencies, as 
well as competitors, can then access. In 
addition, the focus of research analysts 
and investors on quarterly results and 
stock price performance may constrain 
the operational flexibility that a private 
company enjoys.
(b) Regulatory requirements and 
potential liability
Public companies must file various reports 
with the SEC and other regulators on an 
ongoing basis. In order to comply with 
disclosure requirements, companies often 
need to change or expand their existing 
policies and infrastructure, which can be 
costly and time-consuming. In addition, 
directors and officers are potentially 
liable for misstatements and omissions 
in the registration statement and in the 
company’s ongoing reporting under the 
Securities Exchange Act of 1934 (the 
Exchange Act).
(c) Sarbanes-Oxley
The Sarbanes-Oxley (SOX) Act was 
passed in 2002 following a number of 
major corporate and accounting scandals, 
which cost investors billions of dollars and 
shook public confidence in US securities’ 
controls and disclosure. SOX set new 
standards for public companies, including 
requirements relating to accounting, 
corporate governance, internal controls 
and enhanced financial disclosure. 
Achieving SOX compliance can require 
significant time, resources and capital. 
Although the JOBS Act relieves emerging 
growth companies (EGCs) and SEC rule 
updates in 2020 relieve smaller reporting 
companies (SRCs) of the obligation to 
have their independent auditors provide 
an attestation on internal controls under 
Section 404(b), they are still required to 
put in place internal controls sufficient for 
management to provide the certifications 
required by Section 404(a)

NYSE IPO Guide Third Edition